Her government proposed an unfunded budget that caused a gilt market panic. Part of the mortgage market dried up. Variable mortgage rates exploded. Pension funds had to resort to emergency measures. The Bank of England had to intervene.
Don't the groups in the gilt market, mortgage market, pension funds, etc., have lobbyists that would be able to communicate their concerns and fears ahead of time?
For that matter aren't there Whitehall staff that could easily have said something?
There are all sorts of processes to say to her that this was a bad idea. She ignored them. It's a very Chernobyl kind of process: in order to run your experiment, first ignore all the safety alarms.
Because the UK in 2022 is not the US in 2017. One had high growths and low rate expectations. The other had high inflation raising rate expectations, so the borrowing cost more.
Lost the confidence of the market for UK government debt pushing up borrowing costs for government and for others (as well as causing problems for pension funds who own that debt).
She did this by launching a series of unfunded tax cuts and doing so without an assessment of the impact on the UK's finances.
> She did this by launching a series of unfunded tax cuts
Another interesting difference between the US and UK. Republicans do this routinely in the US, and have done for many decades now.
The last Republican president who didn't do this was George Bush (the first one). After promising "no new taxes" during his campaign, he later agreed to do the fiscally responsible thing and raise taxes in order to offset spending increases. He was not re-elected. That was ~30 years ago, and to my knowledge no subsequent Republican president has made that mistake.
US can run jaw-dropping debt-to-GDP ratios that are the envy of other nations thanks to $ being the world's reserve currency. US protects this privileged status religiously by any and all means - economic/diplomatic/political/military.
- I think in this instance it was partly the fact that they didn’t seem to be interested in the fiscal position and didn’t publish an assessment because they thought it was bad - so the markets assumed the worst. Don’t think any U.S. president has gone quite so far - happy to be corrected!
While they do, I'm not sure they ever have in quite _these_ circumstances. The UK is (a) seeing some of the highest rates of inflation in the developed world and (b) needs to massively subsidise energy costs due to the energy crisis caused by the Russian invasion of Ukraine. Now, I'd argue that borrowing enormous amounts of money to give a tax break to the upper-middle-class is almost _never_ a good idea, but it's particularly not a good idea in the current climate.
> After promising "no new taxes" during his campaign, he later agreed to do the fiscally responsible thing and raise taxes in order to offset spending increases.
That is an extremely charitable parsing of the events. The more accurate (realpolitik) version is Bush said the no new taxes quip, and Democrats subsequently laser-focused on making him (slightly) raise taxes, showing he is a "liar".
My take away is to learn not to promise overly optimistic outcomes when your political rivals have a significant stake in seeing you either be a success or a failure.
Edit: Not sure why this was flagged. Did not mean to come off as hostile or aggressive. Anyways, cheers.
> The more accurate (realpolitik) version is Bush said the no new taxes quip, and Democrats subsequently laser-focused on making him (slightly) raise taxes, showing he is a "liar".
These days I think a Republican president in the same position would be a lot more likely to refuse to sign it, even it if meant shutting down the government. But politicians (and voters) really were much less divided back then compared to today.
> My take away is to learn not to promise overly optimistic outcomes when your political rivals have a significant stake in seeing you either be a success or a failure.
Over-promising is the bread and butter of campaign rhetoric; candidates do it all the time (certainly in US presidential elections at least). If it was really that much of a problem in practice, you'd see more election winners who hadn't previously promised all kinds of things they have no chance of delivering.
Announced a lot of unfunded tax cuts financed by borrowing - these have now been walked back on. The main issue was not really that she cut taxes, it's the unfunded borrowing to cover. Borrowing with the current high interest rates was always going to be risky and the market didn't have confidence that the cuts would lead to growth. This caused the value of the pound and of UK gov bonds (gilts) to plummet. Several large pension funds (which usually hold large numbers of gilts) were in danger of being margin called, which would cause them to have to sell gilts to cover the responsibility, which would drive down the price further, causing more sell offs. To prevent this the Bank of England (BoE) announced that they would be buying up to £65B of UK gilts - which calmed the markets and prevented a sell off (for now). But it has significantly worsened the economic outly for the country, buying your own bonds at a premium during a period of high inflation is a horrible position to be in.
The gov also declined to get the Office of Budget Responsibility (OBR) to check the impact of the plans. This is something the OBR does before every budget and it's very unusual that they didn't do this - even though it turns out they offered to before the budget was released. It didn't help that a lot of the taxes cut were targeted for high earners - It's hard to argue how cutting the top 45pc tax rate for earners over £150,000 and dropping a cap on bankers bonuses would help people in the short term (or dare. I say, the long), when the majority of people in the UK were struggling with the massively increased cost of living. It almost seemed as if the conservatives were trying to force through a list of long desired for tax cuts for the wealthy without the proper mandate (as Truss was only. elected by Conservative party members, rather than the general electorate) - and this made her gov monstrously unpopular.
Introduced a set of deep tax cuts. The markets reacted negatively to the implied increase in governmental borrowing. The pound had hit an all time low against the US dollar.
